FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_______________ to _______________
Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0182330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
414/259-5333
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No____
-----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class November 8, 2001
- --------------------------------------------------------------------------------
COMMON STOCK, par value $0.01 per share 21,604,183 Shares
1
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 2001 and July 1, 2001 3
Consolidated Condensed Statements of Income -
Three Months ended September 30, 2001 and
October 1, 2000 5
Consolidated Condensed Statements of Cash Flow -
Three Months ended September 30, 2001 and
October 1, 2000 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II - OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
September 30, July 1,
2001 2001
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 24,600 $ 88,743
Accounts receivable, net 156,315 145,138
Inventories -
Finished products and parts 204,228 218,671
Work in process 137,838 99,247
Raw materials 3,839 3,782
---------- ----------
Total inventories 345,905 321,700
Future income tax benefits 38,550 38,434
Prepaid expenses and other current assets 18,683 19,415
---------- ----------
Total current assets 584,053 613,430
---------- ----------
OTHER ASSETS:
Investments 46,330 46,071
Prepaid pension 43,835 36,275
Deferred loan costs 10,371 10,429
Capitalized software 6,246 6,552
Goodwill 152,062 166,659
Other 402 418
---------- ----------
Total other assets 259,246 266,404
---------- ----------
PLANT AND EQUIPMENT:
Cost 903,899 890,191
Less accumulated depreciation 484,283 473,830
---------- ----------
Total plant and equipment, net 419,616 416,361
---------- ----------
$1,262,915 $1,296,195
========== ==========
The accompanying notes are an integral part of these statements.
3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
September 30, July 1,
2001 2001
---- ----
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 104,282 $ 102,559
Domestic notes payable 3,300 3,300
Foreign loans 16,427 16,291
Accrued liabilities 116,959 115,725
Dividends payable 6,696 --
Federal and state income taxes (4,300) 4,307
---------- ----------
Total current liabilities 243,364 242,182
---------- ----------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,498 15,536
Deferred income tax liability 7,794 18,351
Accrued pension cost 15,067 14,494
Accrued employee benefits 13,001 12,979
Accrued postretirement health care obligation 61,328 61,767
Long-term debt 508,280 508,134
---------- ----------
Total other liabilities 620,968 631,261
---------- ----------
SHAREHOLDERS' INVESTMENT:
Common stock -
Authorized 60,000 shares, $.01 par value, issued
28,927 shares 289 289
Additional paid-in capital 35,988 36,043
Retained earnings 719,115 743,230
Accumulated other comprehensive loss (6,323) (6,182)
Unearned compensation on restricted stock (278) (305)
Treasury stock at cost, 7,326 and 7,330 shares, respectively (350,208) (350,323)
---------- ----------
Total shareholders' investment 398,583 422,752
---------- ----------
$1,262,915 $1,296,195
========== ==========
The accompanying notes are an integral part of these statements.
4
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
------------------
September 30, October 1,
2001 2000
---- ----
NET SALES $221,329 $181,251
COST OF GOODS SOLD 199,807 155,453
-------- --------
Gross profit on sales 21,522 25,798
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 38,224 33,612
-------- --------
Loss from operations (16,702) (7,814)
INTEREST EXPENSE (10,422) (4,568)
OTHER INCOME, net 315 2,373
-------- --------
Loss before credit for income taxes (26,809) (10,009)
CREDIT FOR INCOME TAXES (9,385) (3,705)
-------- --------
NET LOSS $(17,424) $ (6,304)
======== ========
LOSS PER SHARE DATA -
Average shares outstanding 21,600 21,612
======== ========
Basic loss per share $ (0.81) $ (0.29)
======== ========
Diluted average shares outstanding 21,613 21,629
======== ========
Diluted loss per share $ (0.81) $ (0.29)
======== ========
CASH DIVIDENDS PER SHARE $ 0.31 $ 0.31
======== ========
The accompanying notes are an integral part of these statements.
5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Three Months Ended
------------------
Sept. 30, 2001 Oct. 1, 2000
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,424) $ (6,304)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 15,023 13,787
Equity in earnings of unconsolidated affiliates (645) (1,636)
Loss on disposition of plant and equipment 702 54
Pension income, net (6,964) (2,366)
Provision (credit) for deferred income taxes 3,534 (3)
Change in operating assets and liabilities -
Increase in accounts receivable (11,101) (137)
Increase in inventories (24,205) (99,100)
(Increase) decrease in prepaid expenses and other
current assets (734) 959
Decrease (increase) in accounts payable and accrued
liabilities 1,564 (32,731)
Other, net (659) (1,091)
--------- ---------
Net cash used in operating activities (40,909) (128,568)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (18,155) (15,326)
Proceeds received on disposition of plant and equipment 287 844
--------- ---------
Net cash used in investing activities (17,868) (14,482)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on loans and notes payable 136 151,976
Issuance cost of long-term debt (240) --
Dividends (6,691) (6,689)
Purchase of common stock for treasury -- (6,118)
Proceeds from exercise of stock options 52 253
--------- ---------
Net cash (used in) provided by financing activities (6,743) 139,422
--------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS 1,377 (1,422)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (64,143) (5,050)
CASH AND CASH EQUIVALENTS, beginning 88,743 16,989
--------- ---------
CASH AND CASH EQUIVALENTS, ending $ 24,600 $ 11,939
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 12,443 $ 5,788
========= =========
Income taxes paid $ 186 $ 1,637
========= =========
The accompanying notes are an integral part of these statements.
6
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
General Information
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of Briggs & Stratton
Corporation, adequate disclosures have been presented to make the information
not misleading, and all adjustments necessary to present fair statements of the
results of operations and financial position have been included. All of these
adjustments are of a normal recurring nature. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto which were included in our latest Annual Report on Form 10-K.
Comprehensive Income
Financial Accounting Standard No. 130, "Reporting Comprehensive
Income", requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting method that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. Total
comprehensive loss is as follows (in thousands):
Three Months Ended
------------------
September 30, October 1,
2001 2000
---- ----
Net Loss $(17,424) $(6,304)
Unrealized loss on marketable securities (190) (256)
Foreign currency translation adjustments 1,514 (1,509)
Gain (loss) on derivative instruments (1,465) 12
-------- -------
Total comprehensive loss $(17,565) $(8,057)
======== =======
The components of Accumulated Other Comprehensive Loss are as follows (in
thousands):
September 30, July 1,
2001 2001
---- ----
Unrealized loss on marketable securities $ (943) $ (753)
Cumulative translation adjustments (5,141) (6,655)
Gain (loss) on derivative instruments (239) 1,226
------- -------
Accumulated other comprehensive loss $(6,323) $(6,182)
======= =======
Derivatives
On July 2, 2000, Briggs & Stratton adopted Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). This statement requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Any changes in
fair value of these instruments are recorded in the income statement or other
comprehensive income. During the first quarter of fiscals 2002 and 2001, we
reclassified immaterial derivative losses to the income statement.
7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Briggs & Stratton enters into derivative contracts designated as cash
flow hedges to manage its foreign currency exposures. These instruments
generally do not have a maturity of more than twelve months. During the quarter,
there were no derivative instruments that were deemed to be ineffective. The
amounts included in Accumulated Other Comprehensive Loss will be reclassified
into income when the forecasted transaction occurs, generally within the next
twelve months. These forecasted transactions represent the exporting of products
for which Briggs & Stratton will receive foreign currency and the importing of
products for which it will be required to pay in a foreign currency.
Acquisition
On May 15, 2001, Briggs & Stratton acquired Generac Portable Products
(GPP), a designer, manufacturer and marketer of portable generators, pressure
washers and related accessories. The aggregate purchase price of $288 million
included $268 million of cash and $20 million of liabilities assumed. The cash
paid included $4.5 million of direct acquisition costs.
The provisions of the acquisition include a contingent purchase price
based on the operating results of GPP. We do not expect to pay any additional
purchase price pursuant to these provisions.
The acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated on a preliminary
basis to identifiable assets acquired and liabilities assumed based upon the
estimated fair values, with the excess purchase price recorded as goodwill.
Final adjustments to the purchase price allocation are not expected to be
material to the consolidated financial statements. A reclassification of
approximately $15 million was made in the first quarter of fiscal 2002 reducing
goodwill and increasing deferred income taxes to record differences in
financial reporting versus tax reporting.
Goodwill of approximately $167 million recorded as a result of the
acquisition and was amortized on a straight-line basis over twenty years, until
July 2, 2001, at which time Briggs & Stratton adopted the provisions of
SFAS No. 142. Under the provisions of SFAS No. 142, goodwill is no longer
amortizable, but is subject to annual impairment tests. The following table
sets forth the unaudited pro forma information for Briggs & Stratton as if the
acquisition of GPP had occurred on July 2, 2000 (in millions, except per
share data):
Three Months Ended
------------------
September 30, October 1,
2001 2000
---- ----
Net Sales $ 221 $ 224
Net Loss $ (17) $ (12)
Basic Loss Per Share $(.81) $(.54)
Diluted Loss Per Share $(.81) $(.54)
8
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Segment and Geographic Information
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and subsequent to the May 15, 2001
acquisition of Generac Portable Products, Inc., Briggs & Stratton has concluded
that it operates two reportable business segments which are managed separately
based on fundamental differences in their operations. Summarized segment data is
as follows (in thousands):
Three Months Ended
------------------
September 30, October 1,
2001 2000
---- ----
NET SALES:
Engines $179,487 $181,251
Generac Portable Products 55,128 --
Eliminations (13,286) --
-------- --------
Total * $221,329 $181,251
======== ========
* Includes sales to
international customers $ 56,709 $ 49,711
======== ========
INCOME (LOSS) FROM OPERATIONS:
Engines $(17,620) $ (7,814)
Generac Portable Products 1,643 --
Eliminations (725) --
-------- --------
Total $(16,702) $ (7,814)
======== ========
Sales Incentives
The Emerging Issues Task Force (EITF) issued EITF Abstract No. 00-25,
"Vendor Income Statements Characterization of Consideration Paid to a Re-Seller
of a Vendor's Products". Briggs & Stratton plans on adopting EITF No. 00-25 in
the second quarter of fiscal 2002. We will be required to reclassify co-op
advertising expense from selling expense to sales as a reduction of gross sales.
The reclassification will not have a material adverse effect on our results of
operations.
Business Combinations
In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets" having a required effective date for fiscal years
beginning after December 31, 2001. Under certain circumstances companies are
permitted to adopt these statements before the required date. Under the new
rules, goodwill and other intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.
Briggs & Stratton adopted the new rules on accounting for goodwill
and other intangible assets in the first quarter of fiscal 2002. Application of
the nonamortization provisions of the SFAS No. 142 is expected to result in an
increase in net income of approximately $.7 million in fiscal 2002. We will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets during the second quarter of fiscal 2002.
There was no proforma impact of adopting SFAS No. 142. No
amortization of goodwill was recorded in the first quarter of fiscals 2002 or
2001, because the acquisition of GPP did not occur until May 15, 2001.
9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Long Lived Assets
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". SFAS No. 144 also supersedes the accounting and reporting
provisions of APB Opinion No. 31, related to the disposal of a segment of a
business. SFAS No. 144 will be adopted on July 1, 2002. Management does not
expect SFAS No. 144 to have a material impact on the consolidated financial
statements.
Financial Information of Subsidiary Guarantors of Indebtedness
Under the terms of Briggs & Stratton's 7.25% senior notes, 8.875%
senior notes and 5.00% convertible senior notes and our revolving credit
agreement, (collectively, the Domestic Indebtedness), GPP and its subsidiaries
became joint and several guarantors of the Domestic Indebtedness. Additionally,
if at any time a domestic subsidiary of Briggs & Stratton constitutes a
significant domestic subsidiary, then such domestic subsidiary will also become
a guarantor of the Domestic Indebtedness. Each guarantee of the Domestic
Indebtedness is the obligation of the guarantor and ranks equally and ratably
with the existing and future senior unsecured obligations of that guarantor;
accordingly, GPP has provided a full and unconditional guarantee of the Domestic
Indebtedness. The following condensed supplemental consolidating financial
information reflects the operations of GPP for the three months ended September
30, 2001 (in thousands of dollars):
BALANCE SHEET: Briggs & Stratton Guarantor Non-Guarantor
As of September 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------ ----------- ------------ ------------ ------------ ------------
Current Assets $ 451,276 $ 99,934 $54,500 $ (21,657) $ 584,053
Investment in Subsidaries 296,196 -- -- (296,196) --
Noncurrent Assets 502,489 173,813 2,560 -- 678,862
---------- -------- ------- --------- ----------
$1,249,961 $273,747 $57,060 $(317,853) $1,262,915
========== ======== ======= ========= ==========
Current Liabilities $ 211,327 $ 16,918 $30,311 $ (15,192) $ 243,364
Long-Term Debt 508,280 -- -- -- 508,280
Other Long-Term Obligations 124,976 (12,288) -- -- 112,688
Stockholders' Equity 405,378 269,117 26,749 (302,661) 398,583
---------- -------- ------- --------- ----------
$1,249,961 $273,747 $57,060 $(317,853) $1,262,915
========== ======== ======= ========= ==========
STATEMENT OF EARNINGS:
For the Three Months Ended September 30, 2001
- ---------------------------------------------
Net Sales $ 170,838 $ 55,128 $18,576 $ (23,213) $ 221,329
Cost of Goods Sold 160,260 47,468 14,637 (22,558) 199,807
---------- -------- ------- --------- ----------
Gross Profit 10,578 7,660 3,939 (655) 21,522
Engineering, Selling, General and
Administrative Expenses 29,036 6,018 3,170 -- 38,224
---------- -------- ------- --------- ----------
Income (Loss) from Operations (18,458) 1,642 769 (655) (16,702)
Interest Expense (10,208) (24) (240) 50 (10,422)
Other (Expense) Income, Net 997 (13) 308 (977) 315
---------- -------- ------- --------- ----------
Income (Loss) Before Provision (Credit)
for Income Taxes (27,669) 1,605 837 (1,582) (26,809)
Provision (Credit) for Income Taxes (10,245) 557 303 -- (9,385)
---------- -------- ------- --------- ----------
Net Income (Loss) $ (17,424) $ 1,048 $ 534 $ (1,582) $ (17,424)
========== ======== ======= ========= ==========
10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS:
For the Three Months Ended
- -------------------------- Briggs & Stratton Guarantor Non-Guarantor
September 30, 2001 Corporation Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------ ----------- ------------ ------------ ------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $(18,352) $ 1,048 $ 534 $ (654) $(17,424)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in
Operating Activities-
Depreciation and Amortization 14,251 610 162 -- 15,023
Equity (Earnings) Loss of Affiliates and
Subsidiaries (945) -- 300 -- (645)
(Gain) Loss on Disposition of Plant and
Equipment 709 -- (7) -- 702
Pension Income, Net (6,964) -- -- -- (6,964)
Provision for Deferred Taxes 2,734 800 -- -- 3,534
Change in Operating Assets and Liabilities-
(Increase) Decrease in Receivables (13,174) 2,231 (1,539) 1,381 (11,101)
(Increase) Decrease in Inventories (22,430) (2,182) (435) 842 (24,205)
(Increase) Decrease in Other Current Assets 408 (742) (400) -- (734)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 5,750 (3,060) 443 (1,569) 1,564
Other, Net (832) 173 -- -- (659)
-------- ------- ------- ------- --------
Net Cash Used in
Operating Activities $(38,845) $(1,122) $ (942) $ -- $(40,909)
-------- ------- ------- ------- --------
Cash Flows from Investing Activities:
Additions to Plant and Equipment $(17,615) $ (396) $ (144) $ -- $(18,155)
Proceeds Received on Disposition of
Plant and Equipment 279 -- 8 -- 287
-------- ------- ------- ------- --------
Net Cash Used in
Investing Activities $(17,336) $ (396) $ (136) $ -- $(17,868)
-------- ------- ------- ------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) on
Loans and Notes Payable $ (1,751) $ 1,751 $ 136 $ -- $ 136
Issuance Costs of
Long-Term Debt (240) -- -- -- (240)
Dividends (6,691) -- -- -- (6,691)
Proceeds from Exercise of Stock Options 52 -- -- -- 52
-------- ------- ------- ------- --------
Net Cash (Used in) Provided by
Financing Activities $ (8,630) $ 1,751 $ 136 $ -- $ (6,743)
-------- ------- ------- ------- --------
Effect of Exchange Rate Changes $ -- $ 492 $ 885 $ -- $ 1,377
-------- ------- ------- ------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents $(64,811) $ 725 $ (57) $ -- $(64,143)
Cash and Cash Equivalents, Beginning 85,282 683 2,778 -- 88,743
-------- ------- ------- ------- --------
Cash and Cash Equivalents, Ending $ 20,471 $ 1,408 $ 2,721 $ -- $ 24,600
======== ======= ======= ======= ========
11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of Briggs &
Stratton's financial condition and results of operations for the periods
included in the accompanying consolidated condensed financial statements:
RESULTS OF OPERATIONS
ACQUISITION
On May 15, 2001, Briggs & Stratton acquired Generac Portable Products
(GPP) for net cash of $267 million. The results of GPP's operations are included
in fiscal 2002's first quarter. The first quarter of fiscal 2001 did not include
results of GPP.
SALES
Net sales for the first quarter of fiscal 2002 totaled $221 million,
an increase of $40 million or 22% when compared to the same period of the
preceding year. This increase was solely due to the inclusion of GPP's sales in
the results for the first quarter of fiscal 2002. Net sales for the engine
segment of the business were down slightly between comparable periods because
the volume increase in engine shipments was offset by the negative impact of a
sales mix, which tended towards lower priced engines.
Net sales for GPP totaled $55 million, an increase of $10 million
over their performance a year ago when Briggs & Stratton did not own it. While
this improvement was accomplished by double-digit gains in generator units, GPP
did not experience the type of generator demand that could have resulted from a
normal hurricane season.
GROSS PROFIT MARGIN
The gross profit rate decreased to 10% in the current year from 14%
in the preceding year. This decline was due entirely to results in the engine
segment of the business where the gross profit rate was 8% in fiscal 2002
compared to 14% in fiscal 2001. The major reason for the decrease was less
absorbed fixed costs related to a 37% decrease in engine production between the
years.
Gross profits for GPP were $8 million or 14% of sales. This gross
profit margin was slightly better than a year ago, reflecting better plant
utilization.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased $5 million or 14% between years. This
increase is primarily due to expenses incurred at GPP. GPP's expenses were $6
million, which were similar to its expenses last year.
INTEREST EXPENSE
Interest expense increased $6 million or 128% between years. This was
the result of the $271 million of debt incurred for the acquisition of GPP.
12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PROVISION FOR INCOME TAXES
The effective tax rate used in the current fiscal quarter was 35.0%.
This is management's estimate of what the rate will be for the entire 2002
fiscal year. The rate for the first quarter of fiscal 2001 was 37.0%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operating activities for the first quarter of
fiscal 2002 was $41 million and $129 million in the first quarter of fiscal
2001, an $88 million decrease in requirements between years. This reflects
decreased net income of $11 million, offset by reduced working capital
requirements of $97 million. The primary decrease in working capital
requirements was due to a reduction in engine inventories. The change in
accounts payable and accrued liabilities was attributable to GPP being included
in the three months ended September 30, 2001 and $16 million of lower payments
of profit sharing accruals as compared to the same period in 2000.
In the first quarter of fiscal 2002, $18 million of cash was used in
investing activities compared to $14 million in the first quarter of fiscal
2001. Additions to plant and equipment were the major use of cash.
Net cash provided by financing activities decreased $146 million
between years. The significant decrease was due to the level of short-term
domestic borrowings used to fund working capital needs.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
Briggs & Stratton has remaining authorization to buy up to 1.8
million shares of its stock in open market or private transactions under the
June 2000 Board of Directors' authorization to repurchase up to 2.0 million
shares. We did not purchase any shares in the first quarter of fiscal 2002 and
do not anticipate repurchasing additional shares for the remainder of fiscal
2002.
As of November 8, 2001, we replaced our $250 million revolving credit
facility that would have expired in April 2002, with a three-year $300 million
revolving credit facility.
Management expects cash flows for capital expenditures to total
approximately $60 million in fiscal 2002. These anticipated expenditures provide
for continued investments in equipment and new products. These expenditures will
be funded using available cash and short-term borrowings.
Briggs & Stratton currently intends to increase future cash dividends
per share at a rate approximating the inflation rate, subject to the discretion
of its Board of Directors and the requirements of applicable law and debt
covenants.
Management believes that available cash, the credit facility, cash
generated from operations, existing lines of credit and access to debt markets
will be adequate to fund its capital requirements for the foreseeable future.
OUTLOOK
Projected results for the second quarter of fiscal 2002 are not as
strong as originally anticipated, but when combined with the improved first
quarter results, we currently expect to meet our six-month projections. We
anticipate slower sales, as the original equipment manufacturers build closer to
the retail spring season, and lower production levels will cause the first half
of the year to yield significantly lower results than the same period a year
ago.
13
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Sales for the entire fiscal year are now anticipated to be
approximately $1.64 billion, about 25% higher than last year but lower than
earlier forecasts. Weakened generator sales account for the reduction. The gross
profit percentage is projected to be approximately 17.8% for the year. The
improvement from earlier projections comes from planned expense controls.
Engineering, selling and administrative expenses, originally projected to
increase from $140 to $165 million, are now anticipated to only increase to $159
million. The majority of the reduction is associated with GPP's costs that are
variable depending on sales levels. Interest expense is anticipated to be $45
million, depreciation $60 million and the effective tax rate is planned to be
35%. These estimates are expected to result in net income between $58 and $62
million.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of
Financial Condition and Results of Operations may contain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements. The
words "anticipate", "believe", "estimate", "expect", "intend", "may",
"objective", "plan", "seek", "think", "will" and similar expressions are
intended to identify forward-looking statements. The forward-looking statements
are based on Briggs & Stratton's current views and assumptions and involve risks
and uncertainties that include, among other things: our ability to successfully
forecast demand for our products and appropriately adjust our manufacturing and
inventory levels; changes in our operating expenses; our ability to successfully
integrate the acquisition of GPP into our operations; changes in interest rates;
the effects of weather on the purchasing patterns of consumers and original
equipment manufacturers; actions of engine manufacturers and OEMs with whom we
compete; the seasonal nature of our business; changes in laws and regulations,
including environmental and accounting standards; work stoppages or other
consequences of any deterioration in our employee relations; changes in customer
and OEM demand; changes in prices of purchased raw materials and parts that we
purchase; changes in domestic economic conditions, including housing starts and
changes in consumer disposable income; changes in foreign economic conditions,
including currency rate fluctuations; and other factors that may be disclosed
from time to time in our SEC filings or otherwise. Some or all of the factors
may be beyond our control. We caution you that any forward-looking statement
reflects only our belief at the time the statement is made. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 12, 2001,
filing of the Company's Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 17, 2001, director
nominees named below were elected to a three-year term expiring in 2004 by the
indicated votes cast for and withheld with respect to each nominee.
Name of Nominee For Withheld
--------------- --- --------
David L. Burner 20,188,302 121,797
Eunice M. Filter 20,175,925 134,174
Frederick P. Stratton, Jr. 20,178,341 131,758
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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Directors whose terms of office continue past the Annual Meeting of
Shareholders are: Jay H. Baker; Michael E. Batten; Peter A. Georgescu; Robert J.
O'Toole; John S. Shiely and Charles I. Story.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
10 Amended and Restated Briggs & Stratton Corporation
Economic Value Added Incentive Compensation Plan*
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
*Filed herewith
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the first quarter ended
September 30, 2001, however, a Form 8-K was filed on October 18, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRIGGS & STRATTON CORPORATION
(Registrant)
Date: November 13, 2001 /s/ James E. Brenn
------------------
James E. Brenn
Senior Vice President and Chief Financial Officer and
Duly Authorized Officer
15